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Section 1: 10-Q (FORM 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 000-08467

 

WESBANCO, INC.

(Exact name of Registrant as specified in its charter)

 

WEST VIRGINIA   55-0571723
(State of incorporation)   (IRS Employer Identification No.)
1 Bank Plaza, Wheeling, WV   26003
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 304-234-9000

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☑     No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Yes   ☑     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

    Yes   ☐     No   ☑

As of July 23, 2018, there were 46,643,250 shares of WesBanco, Inc. common stock, $2.0833 par value, outstanding.

 

 

 


Table of Contents

WESBANCO, INC.

TABLE OF CONTENTS

 

Item

No.

  

ITEM

  

Page

No.

 
   PART I – FINANCIAL INFORMATION   
1    Financial Statements   
   Consolidated Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017      3  
   Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (unaudited)      4  
   Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2018 and 2017 (unaudited)      5  
   Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)      6  
   Notes to Consolidated Financial Statements (unaudited)      7  
2   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32  
3   

Quantitative and Qualitative Disclosures About Market Risk

     51  
4   

Controls and Procedures

     54  
   PART II – OTHER INFORMATION   
1    Legal Proceedings      55  
2   

Unregistered Sales of Equity Securities and Use of Proceeds

     56  
6   

Exhibits

     57  
  

Signatures

     58  

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESBANCO, INC. CONSOLIDATED BALANCE SHEETS

 

 

(unaudited, in thousands, except shares)

   June 30,
2018
    December 31,
2017
 

ASSETS

    

Cash and due from banks, including interest bearing amounts of $53,654 and $19,826, respectively

   $ 155,559     $ 117,572  

Securities:

    

Equity securities, at fair value

     13,494       13,457  

Available-for-sale debt securities, at fair value

     1,796,571       1,261,865  

Held-to-maturity debt securities (fair values of $1,016,111 and $1,023,784, respectively)

     1,019,746       1,009,500  
  

 

 

   

 

 

 

Total securities

     2,829,811       2,284,822  
  

 

 

   

 

 

 

Loans held for sale

     12,053       20,320  
  

 

 

   

 

 

 

Portfolio loans, net of unearned income

     6,792,899       6,341,441  

Allowance for loan losses

     (47,638     (45,284
  

 

 

   

 

 

 

Net portfolio loans

     6,745,261       6,296,157  
  

 

 

   

 

 

 

Premises and equipment, net

     131,502       130,722  

Accrued interest receivable

     33,868       29,728  

Goodwill and other intangible assets, net

     661,616       589,264  

Bank-owned life insurance

     191,701       192,589  

Other assets

     185,213       155,004  
  

 

 

   

 

 

 

Total Assets

   $ 10,946,584     $ 9,816,178  
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing demand

   $ 2,046,537     $ 1,846,748  

Interest bearing demand

     1,809,140       1,625,015  

Money market

     1,051,043       1,024,856  

Savings deposits

     1,385,356       1,269,912  

Certificates of deposit

     1,376,528       1,277,057  
  

 

 

   

 

 

 

Total deposits

     7,668,604       7,043,588  
  

 

 

   

 

 

 

Federal Home Loan Bank borrowings

     1,248,406       948,203  

Other short-term borrowings

     258,067       184,805  

Subordinated debt and junior subordinated debt

     165,420       164,327  
  

 

 

   

 

 

 

Total borrowings

     1,671,893       1,297,335  
  

 

 

   

 

 

 

Accrued interest payable

     4,417       3,178  

Other liabilities

     77,564       76,756  
  

 

 

   

 

 

 

Total Liabilities

     9,422,478       8,420,857  
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Preferred stock, no par value; 1,000,000 shares authorized; none outstanding

     —         —    

Common stock, $2.0833 par value; 100,000,000 shares authorized in 2018 and 2017, respectively; 46,655,012 and 44,043,244 shares issued, respectively; 46,643,250 and 44,043,244 shares outstanding, respectively

     97,197       91,756  

Capital surplus

     789,038       684,730  

Retained earnings

     692,820       651,357  

Treasury stock (11,762 and 0 shares - at cost, respectively)

     (555     —    

Accumulated other comprehensive loss

     (53,352     (31,495

Deferred benefits for directors

     (1,042     (1,027
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,524,106       1,395,321  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 10,946,584     $ 9,816,178  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     For the Three Months
Ended June 30,
     For the Six Months
Ended June 30,
 

(unaudited, in thousands, except shares and per share amounts)

   2018      2017      2018      2017  

INTEREST AND DIVIDEND INCOME

           

Loans, including fees

   $ 78,538      $ 67,360      $ 147,671      $ 132,258  

Interest and dividends on securities:

           

Taxable

     14,194        9,375        25,738        18,970  

Tax-exempt

     5,055        4,864        9,890        9,756  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividends on securities

     19,249        14,239        35,628        28,726  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other interest income

     1,101        561        1,904        1,100  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     98,888        82,160        185,203        162,084  
  

 

 

    

 

 

    

 

 

    

 

 

 

INTEREST EXPENSE

           

Interest bearing demand deposits

     3,150        1,506        5,673        2,599  

Money market deposits

     1,093        644        1,972        1,218  

Savings deposits

     227        185        416        367  

Certificates of deposit

     2,977        2,491        5,513        4,902  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense on deposits

     7,447        4,826        13,574        9,086  
  

 

 

    

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank borrowings

     5,953        3,145        10,451        5,980  

Other short-term borrowings

     973        262        1,532        560  

Subordinated debt and junior subordinated debt

     2,168        1,788        4,110        3,600  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     16,541        10,021        29,667        19,226  
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INTEREST INCOME

     82,347        72,139        155,536        142,858  

Provision for credit losses

     1,708        2,383        3,876        5,094  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     80,639        69,756        151,660        137,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST INCOME

           

Trust fees

     5,752        5,572        12,255        11,716  

Service charges on deposits

     5,146        5,081        9,969        9,933  

Electronic banking fees

     5,728        4,984        10,558        9,512  

Net securities brokerage revenue

     1,809        1,680        3,479        3,442  

Bank-owned life insurance

     1,128        1,367        3,884        2,508  

Mortgage banking income

     1,670        968        2,776        2,408  

Net securities gains

     358        494        319        506  

Net gain on other real estate owned and other assets

     229        342        491        307  

Other income

     1,588        1,634        3,760        4,674  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     23,408        22,122        47,491        45,006  
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-INTEREST EXPENSE

           

Salaries and wages

     26,872        23,616        51,878        46,618  

Employee benefits

     7,965        7,731        14,877        15,941  

Net occupancy

     4,103        4,510        8,759        8,837  

Equipment

     4,095        4,097        8,044        8,139  

Marketing

     1,405        2,060        2,521        2,884  

FDIC insurance

     868        906        1,526        1,733  

Amortization of intangible assets

     1,312        1,240        2,397        2,513  

Restructuring and merger-related expense

     5,412        —          5,657        491  

Other operating expenses

     11,511        11,724        22,455        23,112  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest expense

     63,543        55,884        118,114        110,268  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     40,504        35,994        81,037        72,502  

Provision for income taxes

     7,335        9,653        14,339        20,274  
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

   $ 33,169      $ 26,341      $ 66,698      $ 52,228  
  

 

 

    

 

 

    

 

 

    

 

 

 

EARNINGS PER COMMON SHARE

           

Basic

   $ 0.71      $ 0.60      $ 1.47      $ 1.19  

Diluted

   $ 0.71      $ 0.60      $ 1.47      $ 1.19  
  

 

 

    

 

 

    

 

 

    

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

           

Basic

     46,498,305        43,995,749        45,281,264        43,971,789  

Diluted

     46,639,780        44,061,421        45,417,010        44,046,812  
  

 

 

    

 

 

    

 

 

    

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.29      $ 0.26      $ 0.58      $ 0.52  
  

 

 

    

 

 

    

 

 

    

 

 

 

COMPREHENSIVE INCOME

   $ 26,893      $ 29,065      $ 45,904      $ 57,236  
  

 

 

    

 

 

    

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

For the Six Months Ended June 30, 2018 and 2017

     Common Stock      Capital
Surplus
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other

Comprehensive
(Loss) Income
    Deferred
Benefits for
Directors
    Total  

(unaudited, in thousands, except shares

and per share amounts)

   Shares
Outstanding
    Amount               

December 31, 2017

     44,043,244     $ 91,756      $ 684,730     $ 651,357     $ —       $ (31,495   $ (1,027   $ 1,395,321  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —         —          —         66,698       —         —         —         66,698  

Other comprehensive income

     —         —          —         —         —         (20,794     —         (20,794
                 

 

 

 

Comprehensive income

     —         —          —         —         —         —         —         45,904  

Common dividends declared ($0.58 per share)

     —         —          —         (26,298     —         —         —         (26,298

Adoption of accounting standard ASU 2016-01

     —         —          —         1,063       —         (1,063     —         —    

Shares issued for acquisition

     2,498,761       5,206        102,141       —         —         —         —         107,347  

Treasury shares acquired

     (15,159     —          34       —         (714     —         —         (680

Stock options exercised

     36,788       69        915       —         159       —         —         1,143  

Restricted stock granted

     79,616       166        (166       —             —    

Stock compensation expense

     —         —          1,838       —         —         —         —         1,838  

Deferred benefits for directors- net

     —         —          (454     —         —         —         (15     (469
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2018

     46,643,250     $ 97,197      $ 789,038     $ 692,820     $ (555   $ (53,352   $ (1,042   $ 1,524,106  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016

     43,931,715     $ 91,524      $ 680,507     $ 597,071     $ —       $ (27,126   $ (568   $ 1,341,408  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —         —          —         52,228       —         —         —         52,228  

Other comprehensive income

     —         —          —         —         —         5,008       —         5,008  
                 

 

 

 

Comprehensive income

     —         —          —         —         —         —         —         57,236  

Common dividends declared ($0.52 per share)

     —         —          —         (22,878     —         —         —         (22,878

Treasury shares acquired

     (12,987     —          —         —         (488     —         —         (488

Stock options exercised

     38,584       75        883       —         103       —         —         1,061  

Restricted stock granted

     74,023       154        (154     —         —         —         —         —    

Stock compensation expense

     —         —          1,198       —         —         —         —         1,198  

Deferred benefits for directors- net

     —         —          9       —         —         —         (9     —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2017

     44,031,335     $ 91,753      $ 682,443     $ 626,421     $ (385   $ (22,118   $ (577   $ 1,377,537  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

WESBANCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     For the Six Months Ended
June 30,
 

(unaudited, in thousands)

   2018     2017  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 66,853     $ 56,509  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net increase in loans held for investment

     (11,819     (141,174

Debt securities available-for-sale:

    

Proceeds from sales

     81,521       7,760  

Proceeds from maturities, prepayments and calls

     114,206       102,225  

Purchases of securities

     (625,395     (104,584

Debt securities held-to-maturity:

    

Proceeds from maturities, prepayments and calls

     37,842       64,188  

Purchases of securities

     (44,656     (29,912

Equity securities:

    

Proceeds from sales

     827       —    

Purchases of securities

     (467     —    

Proceeds from bank-owned life insurance

     4,772       349  

Purchases of premises and equipment – net

     (845     (4,898

Net cash received from acquisition

     86,149       —    

Sale of portfolio loans – net

     12,996       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (344,869     (106,046
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Increase in deposits

     36,045       32,494  

Proceeds from Federal Home Loan Bank borrowings

     575,000       415,000  

Repayment of Federal Home Loan Bank borrowings

     (327,142     (362,331

Increase (decrease) in other short-term borrowings

     67,103       (6,205

Decrease in federal funds purchased

     (3,000     (25,500

Repayment of junior subordinated debt

     (8,240     —    

Dividends paid to common shareholders

     (24,226     (21,969

Issuance of common stock

     1,035       990  

Treasury shares purchased – net

     (572     (417
  

 

 

   

 

 

 

Net cash provided by financing activities

     316,003       32,062  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     37,987       (17,475

Cash and cash equivalents at beginning of the period

     117,572       128,170  
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 155,559     $ 110,695  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Interest paid on deposits and other borrowings

   $ 29,791     $ 19,844  

Income taxes paid

     10,000       14,700  

Transfers of loans to other real estate owned

     229       298  

Transfers of loans to held for sale

     12,996       —    

Non-cash transactions related to FTSB acquisition

     107,347       —    

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying unaudited interim financial statements of WesBanco, Inc. and its consolidated subsidiaries (“WesBanco”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.

WesBanco’s interim financial statements have been prepared following the significant accounting policies disclosed in Note 1 of the Notes to the Consolidated Financial Statements of its 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly WesBanco’s financial position and results of operations for each of the interim periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on WesBanco’s net income and stockholders’ equity. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year.

Recent accounting pronouncements — In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. WesBanco is currently assessing the impact of ASU 2017-12 on WesBanco’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 that changes how an employer presents the net periodic benefit cost in the income statement for an employer-sponsored defined benefit pension and/or other postretirement benefit plans. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line items that includes the service cost outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). For WesBanco, this update was effective for the fiscal year beginning January 1, 2018. Upon adoption, WesBanco reclassified the service cost component from employee benefits to salaries and wages, which are both components of non-interest expense. The service cost component for the three and six months ended June 30, 2018 was $0.7 and $1.4 million, respectively.

In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16 that provides the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in generally accepted accounting principles. The exception has led to diversity in practice and is a source of complexity in financial reporting. FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The amendments in this update were to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15 that provides guidance for the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate on the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which for WesBanco was effective for the fiscal year beginning January 1, 2018. The adoption of this pronouncement did not have a material impact on WesBanco’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13 that will require entities to use a new forward-looking “expected loss” model on trade and other receivables, held-to-maturity debt securities, loans and other instruments that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Entities will have to disclose significantly

 

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more information, including information they use to track credit quality by year of origination for most financing receivables. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which for WesBanco will be effective for the fiscal year beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. WesBanco is currently evaluating the impact of the adoption of this pronouncement on WesBanco’s Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02 that will require entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the balance sheet. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In January 2018, the FASB issued ASU 2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. In July 2018, the FASB issued ASU 2018-10, which provides narrow-scope improvements to the lease standard. While we are currently assessing the impact of the adoption of this pronouncement, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated Balance Sheets resulting in the recording of right of use assets and lease obligations.

In January 2016, the FASB issued ASU 2016-01 that will require entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In February 2018, the FASB issued ASU 2018-03, which clarifies certain aspects of the guidance issued in ASU 2016-01. WesBanco adopted these pronouncements as of January 1, 2018 and recognized a $1.1 million adjustment to retained earnings upon adoption of this pronouncement. In addition, WesBanco reclassified investment securities on the Consolidated Financial Statements into the following – equity securities, available-for-sale debt securities and held-to-maturity debt securities.

In May 2014, the FASB issued ASU 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, which amends the principle versus agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope improvements and practical expedients to the revenue standard. WesBanco adopted these pronouncements as of January 1, 2018 using the modified retrospective approach. WesBanco noted no material change to the timing of revenue recognition and there was no material impact on WesBanco’s Consolidated Financial Statements. See Note 9, Revenue Recognition for further discussion on revenue within the scope of ASC 606.

 

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NOTE 2. MERGERS AND ACQUISITIONS

On April 5, 2018, WesBanco completed its acquisition of First Sentry Bancshares, Inc. (“FTSB”), a bank holding company headquartered in Huntington, WV. On the acquisition date, FTSB had approximately $706.1 million in assets, excluding goodwill, which included approximately $448.3 million in loans and $142.9 million in securities. The FTSB acquisition was valued at $108.3 million, based on WesBanco’s closing stock price on April 5, 2018, of $42.96, and resulted in WesBanco issuing 2,498,761 shares of its common stock and $1.0 million in cash in exchange for all of the outstanding shares of FTSB common stock including stock options. The assets and liabilities of FTSB were recorded on WesBanco’s Balance Sheet at their preliminary estimated fair values as of April 5, 2018, the acquisition date, and FTSB’s results of operations have been included in WesBanco’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from FTSB on April 5, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, WesBanco recorded $66.2 million in goodwill and $8.2 million in core deposit intangibles in its community banking segment, representing the principal change in goodwill and intangibles from December 31, 2017. None of the goodwill is deductible for income tax purposes, as the acquisition is accounted for as a tax-free exchange for tax purposes. As a result of the full integration of the operations of FTSB, it is not practicable to determine revenue or net income included in WesBanco’s operating results relating to FTSB since the date of acquisition, as FTSB’s results cannot be separately identified.

For the six months ended June 30, 2018, WesBanco recorded merger-related expenses of $5.0 million associated with the FTSB acquisition.

The preliminary purchase price of the FTSB acquisition and resulting goodwill is summarized as follows:

 

(unaudited, in thousands)

   April 5, 2018  

Purchase Price:

  

Fair value of WesBanco shares issued

   $ 107,347  

Cash consideration for outstanding FTSB shares

     975  
  

 

 

 

Total purchase price

   $ 108,322  

Fair value of:

  

Tangible assets acquired

   $ 610,712  

Core deposit and other intangible assets acquired

     8,237  

Liabilities assumed

     (663,970

Net cash received in the acquisition

     87,124  
  

 

 

 

Fair value of net assets acquired

     42,103  
  

 

 

 

Goodwill recognized

   $ 66,219  
  

 

 

 

The following table presents the preliminary allocation of the purchase price of the assets acquired and the liabilities assumed at the date of acquisition, as WesBanco intends to finalize its accounting for the acquisition of FTSB within one year from the date of acquisition:

 

(unaudited, in thousands)

   April 5, 2018  

Assets acquired

  

Cash and due from banks

   $ 87,124  

Securities

     142,903  

Loans

     448,339  

Goodwill and other intangible assets

     74,456  

Accrued income and other assets

     19,470  
  

 

 

 

Total assets acquired

   $ 772,292  
  

 

 

 

Liabilities assumed

  

Deposits

   $ 590,018  

Borrowings

     70,710  

Accrued expenses and other liabilities

     3,242  
  

 

 

 

Total liabilities assumed

   $ 663,970  
  

 

 

 

Net assets acquired

   $ 108,322  
  

 

 

 

On April 19, 2018, WesBanco and Farmers Capital Bank Corporation (“FFKT”), a bank holding company headquartered in Frankfort, Kentucky with approximately $1.7 billion in assets, $1.4 billion in deposits, $1.0 billion in loans and 34 branches, jointly announced that a definitive Agreement and Plan of Merger was executed providing for the merger of FFKT with and into WesBanco. On the date of the announcement, the transaction was valued at approximately $378.2 million. Under the terms of the Agreement and Plan of Merger, which has been approved by the board of directors of both companies, WesBanco will exchange a combination of its common stock and cash for FFKT common stock. FFKT’s shareholders will be entitled to receive 1.053 shares of WesBanco common stock and cash in the amount of $5.00 per share for each share of FFKT common stock for a total value of approximately $50.31 per share at the date of announcement. The receipt by FFKT shareholders of shares of WesBanco common stock in exchange for their shares of FFKT’s common stock is anticipated to qualify as a tax-free exchange. The acquisition has been approved by the appropriate banking regulatory authorities and the shareholders of FFKT. It is expected that the transaction will be completed in the third quarter of 2018. For the six months ended June 30, 2018, WesBanco has recorded merger-related expenses of $0.7 million associated with the FFKT acquisition.

 

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NOTE 3. EARNINGS PER COMMON SHARE

Earnings per common share are calculated as follows:

 

     For the Three Months Ended
June 30,
     For the Six Months Ended
June 30,
 

(unaudited, in thousands, except shares and per share amounts)

   2018      2017      2018      2017  

Numerator for both basic and diluted earnings per
common share:

 

        

Net income

   $ 33,169      $ 26,341      $ 66,698      $ 52,228  
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Total average basic common shares outstanding

     46,498,305        43,995,749        45,281,264        43,971,789  

Effect of dilutive stock options and other stock compensation

     141,475        65,672        135,746        75,023  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total diluted average common shares outstanding

     46,639,780        44,061,421        45,417,010        44,046,812  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share – basic

   $ 0.71      $ 0.60      $ 1.47      $ 1.19  

Earnings per common share – diluted

   $ 0.71      $ 0.60      $ 1.47      $ 1.19  
  

 

 

    

 

 

    

 

 

    

 

 

 

Options to purchase 117,600 shares and 117,550 shares at June 30, 2018 and 2017, respectively, were not included in the computation of net income per diluted share for the three months ended June 30, 2018 and 2017, respectively, because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 117,600 shares at June 30, 2018 were not included in the computation of net income per diluted share for the six months ended June 30, 2018 because the exercise price was greater than the average market price of the common shares, and therefore, the effect would be antidilutive. All stock options were included in the computation of net income per diluted share for the six months ended June 30, 2017.

As of June 30, 2018, contingently issuable shares totaling 42,912, were estimated to be awarded under the 2018 and 2017 total shareholder return plans as stock performance targets have been met to date and are included in the diluted calculation. As of June 30, 2018, the shares related to the 2016 total shareholder return plans were not included in the calculation because the effect would be antidilutive. Performance-based restricted stock compensation totaling 17,081 shares were estimated to be awarded as of June 30, 2018 and are included in the diluted calculation.

On April 5, 2018, WesBanco issued 2,498,761 shares of common stock to complete its acquisition of FTSB and granted 9,465 shares of restricted stock to certain FTSB employees. These shares are included in average shares outstanding beginning on that date. For additional information relating to the FTSB acquisition, refer to Note 2, “Mergers and Acquisitions.”

 

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NOTE 4. SECURITIES

The following table presents the fair value and amortized cost of available-for-sale and held-to-maturity debt securities:

 

     June 30, 2018      December 31, 2017  

(unaudited, in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Available-for-sale debt securities

                     

U.S. Treasury

   $ 9,926      $ —        $ (13   $ 9,913      $ —        $ —        $ —       $ —    

U.S. Government sponsored entities and agencies

     103,152        —          (2,470     100,682        72,425        24        (606     71,843  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

     1,413,937        98        (40,618     1,373,417        954,115        214        (19,407     934,922  

Commerical mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

     145,104        55        (4,512     140,647        116,448        4        (1,585     114,867  

Obligations of states and political subdivisions

     126,143        1,866        (1,210     126,799        102,363        2,927        (460     104,830  

Corporate debt securities

     45,070        211        (168     45,113        35,234        228        (59     35,403  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale debt securities

   $ 1,843,332      $ 2,230      $ (48,991   $ 1,796,571      $ 1,280,585      $ 3,397      $ (22,117   $ 1,261,865  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Held-to-maturity debt securities

                     

U.S. Government sponsored entities and agencies

   $ 11,877      $ —        $ (390   $ 11,487      $ 11,465      $ —        $ (325   $ 11,140  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

     161,090        203        (5,740     155,553        170,025        544        (2,609     167,960  

Obligations of states and political subdivisions

     813,456        9,017        (6,065     816,408        794,655        17,364        (1,609     810,410  

Corporate debt securities

     33,323        4        (664     32,663        33,355        919        —         34,274  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total held-to-maturity debt securities

   $ 1,019,746      $ 9,224      $ (12,859   $ 1,016,111      $ 1,009,500      $ 18,827      $ (4,543   $ 1,023,784  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 2,863,078      $ 11,454      $ (61,850   $ 2,812,682      $ 2,290,085      $ 22,224      $ (26,660   $ 2,285,649  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At June 30, 2018, and December 31, 2017, there were no holdings of any one issuer, other than U.S. government sponsored entities and its agencies, in an amount greater than 10% of WesBanco’s shareholders’ equity.

Equity securities, of which $8.3 million consist of investments in various mutual funds held in grantor trusts formed in connection with the Company’s deferred compensation plan, are recorded at fair value and totaled $13.5 million at June 30, 2018 and December 31, 2017.

The following table presents the fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at June 30, 2018. In some instances, the issuers may have the right to call or prepay obligations without penalty prior to the contractual maturity date.

 

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     June 30, 2018  

(unaudited, in thousands)

   One Year
or less
     One to
Five Years
     Five to
Ten Years
     After
Ten Years
     Mortgage-backed
securities
     Total  

Available-for-sale debt securities

                 

U.S. Treasury

   $ 9,913      $ —        $ —        $ —        $ —        $ 9,913  

U.S. Government sponsored entities and agencies

     10,459        6,302        13,739        6,802        63,380        100,682  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1)

     —          —          —          —          1,373,417        1,373,417  

Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1)

     —          —          —          —          140,647        140,647  

Obligations of states and political subdivisions

     9,629        23,831        51,042        42,297        —          126,799  

Corporate debt securities

     9,801        33,364        1,948        —          —          45,113  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale debt securities

   $ 39,802      $ 63,497      $ 66,729      $ 49,099      $ 1,577,444      $ 1,796,571  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-maturity debt securities (2)

                 

U.S. Government sponsored entities and agencies

   $ —        $ —        $ —        $ —        $ 11,487      $ 11,487  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies (1)

     —          —          —          —          155,553        155,553  

Obligations of states and political subdivisions

     6,410        123,247        393,073        293,678           816,408  

Corporate debt securities

     —          7,448        25,215        —          —          32,663  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held-to-maturity debt securities

   $ 6,410      $ 130,695      $ 418,288      $ 293,678      $ 167,040      $ 1,016,111  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

   $ 46,212      $ 194,192      $ 485,017      $ 342,777      $ 1,744,484      $ 2,812,682  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

(2) 

The held-to-maturity debt securities portfolio is carried at an amortized cost of $1.0 billion.

Securities with aggregate fair values of $1.6 billion and $1.4 billion at June 30, 2018 and December 31, 2017, respectively, were pledged as security for public and trust funds, and securities sold under agreements to repurchase. Proceeds from the sale of available-for-sale securities were $81.5 million and $7.8 million for the six months ended June 30, 2018 and 2017, respectively. Net unrealized losses on available-for-sale securities included in accumulated other comprehensive income net of tax, as of June 30, 2018 and December 31, 2017 were $36.0 million and $13.3 million, respectively.

The following table presents the gross realized gains and losses on sales and calls of available-for-sale and held-to-maturity debt securities, as well as gains and losses on equity securities for the three and six months ended June 30, 2018 and 2017, respectively.

 

     For the Three Months Ended
June 30,
     For the Six Months Ended
June 30,
 

(unaudited, in thousands)

   2018      2017      2018      2017  

Debt securities:

           

Gross realized gains

   $ 5      $ 562      $ 12      $ 574  

Gross realized losses

     —          (68      (18      (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains (losses) on debt securities

   $ 5      $ 494      $ (6    $ 506  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities:

           

Unrealized gains recognized on securities still held

   $ 347      $ —        $ 319      $ —    

Net realized gains recognized on securities sold

     6        —          6        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on equity securities

   $ 353      $ —        $ 325      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net securities gains

   $ 358      $ 494      $ 319      $ 506  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables provide information on unrealized losses on debt securities that have been in an unrealized loss position for less than twelve months and twelve months or more as of June 30, 2018 and December 31, 2017:

 

    June 30, 2018  
    Less than 12 months     12 months or more     Total  
    Fair     Unrealized     # of     Fair     Unrealized     # of     Fair     Unrealized     # of  

(unaudited, dollars in thousands)

  Value     Losses     Securities     Value     Losses     Securities     Value     Losses     Securities  

U.S. Treasury

  $ 9,913     $ (13     1     $ —       $ —         —       $ 9,913     $ (13     1  

U.S. Government sponsored entities and agencies

    71,179       (1,885     23       40,491       (975     8       111,670       (2,860     31  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

    864,036       (16,625     160       610,641       (29,733     201       1,474,677       (46,358     361  

Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

    104,546       (3,531     13       23,225       (981     4       127,771       (4,512     17  

Obligations of states and political subdivisions

    357,070       (5,019     571       76,447       (2,256     163       433,517       (7,275     734  

Corporate debt securities

    43,559       (791     21       1,948       (41     1       45,507       (832     22  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 1,450,303     $ (27,864     789     $ 752,752     $ (33,986     377     $ 2,203,055     $ (61,850     1,166  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2017  
    Less than 12 months     12 months or more     Total  
    Fair     Unrealized     # of     Fair     Unrealized     # of     Fair     Unrealized     # of  

(unaudited, dollars in thousands)

  Value     Losses     Securities     Value     Losses     Securities     Value     Losses     Securities  

U.S. Government sponsored entities and agencies

  $ 24,776     $ (160     4     $ 42,248     $ (771     8     $ 67,024     $ (931     12  

Residential mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

    423,794       (5,039     87       637,461       (16,977     193       1,061,255       (22,016     280  

Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

    79,061       (1,089     10       27,852       (496     6       106,913       (1,585     16  

Obligations of states and political subdivisions

    132,831       (852     210       77,554       (1,217     160       210,385       (2,069     370  

Corporate debt securities

    4,015       (19     1       1,948       (40     1       5,963       (59     2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total temporarily impaired securities

  $ 664,477     $ (7,159     312     $ 787,063     $ (19,501     368     $ 1,451,540     $ (26,660     680  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized losses on debt securities in the tables represent temporary fluctuations resulting from changes in market rates in relation to fixed yields. Unrealized losses in the available-for-sale portfolio are accounted for as an adjustment, net of taxes, to other comprehensive income in shareholders’ equity.

WesBanco does not believe the securities presented above are impaired due to reasons of credit quality, as substantially all debt securities are rated above investment grade and all are paying principal and interest according to their contractual terms. WesBanco does not intend to sell, nor is it more likely than not that it will be required to sell, loss position securities prior to recovery of their cost, and therefore, management believes the unrealized losses detailed above are temporary and no impairment loss relating to these securities has been recognized.

Securities that do not have readily determinable fair values and for which WesBanco does not exercise significant influence are carried at cost. Cost method investments consist primarily of FHLB of Pittsburgh, Cincinnati and Indianapolis stock totaling $59.3 million and $45.9 million at June 30, 2018 and December 31, 2017, respectively, and are included in other assets in the Consolidated Balance Sheets. Cost method investments are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable.

 

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NOTE 5. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The recorded investment in loans is presented in the Consolidated Balance Sheets net of deferred loan fees and costs, and discounts on purchased loans. The net deferred loan costs were $2.4 million and $1.6 million at June 30, 2018 and December 31, 2017, respectively. The unamortized discount on purchased loans from acquisitions was $31.4 million, including $11.9 million related to FTSB, and $21.9 million at June 30, 2018 and December 31, 2017, respectively.

 

(unaudited, in thousands)

   June 30,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ 481,690      $ 392,597  

Improved property

     2,707,645        2,601,851  
  

 

 

    

 

 

 

Total commercial real estate

     3,189,335        2,994,448  
  

 

 

    

 

 

 

Commercial and industrial

     1,294,488        1,125,327  

Residential real estate

     1,450,829        1,353,301  

Home equity

     535,653        529,196  

Consumer

     322,594        339,169  
  

 

 

    

 

 

 

Total portfolio loans

     6,792,899        6,341,441  
  

 

 

    

 

 

 

Loans held for sale

     12,053        20,320  
  

 

 

    

 

 

 

Total loans

   $ 6,804,952      $ 6,361,761  
  

 

 

    

 

 

 

The following tables summarize changes in the allowance for credit losses applicable to each category of the loan portfolio:

 

     Allowance for Credit Losses By Category  
     For the Six Months Ended June 30, 2018 and 2017  
     Commercial     Commercial                                      
     Real Estate-     Real Estate-                                      
     Land and     Improved     Commercial     Residential     Home           Deposit        

(unaudited, in thousands)

   Construction     Property     & Industrial     Real Estate     Equity     Consumer     Overdraft     Total  

Balance at December 31, 2017:

                

Allowance for loan losses

   $ 3,117     $ 21,166     $ 9,414     $ 3,206     $ 4,497     $ 3,063     $ 821     $ 45,284  

Allowance for loan commitments

     119       26       173       7       212       37       —         574  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

     3,236       21,192       9,587       3,213       4,709       3,100       821       45,858  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     1,465       (1,774     2,100       944       54       615       439       3,843  

Provision for loan commitments

     44       (8     2       2       (7     —         —         33  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     1,509       (1,782     2,102       946       47       615       439       3,876  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (136     (692     (616     (509     (672     (1,793     (541     (4,959

Recoveries

     264       776       636       252       279       1,066       197       3,470  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     128       84       20       (257     (393     (727     (344     (1,489
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018:

                

Allowance for loan losses

     4,710       19,476       11,534       3,893       4,158       2,951       916       47,638  

Allowance for loan commitments

     163       18       175       9       205       37       —         607  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 4,873     $ 19,494     $ 11,709     $ 3,902     $ 4,363     $ 2,988     $ 916     $ 48,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016:

                

Allowance for loan losses

   $ 4,348     $ 18,628     $ 8,412     $ 4,106     $ 3,422     $ 3,998     $ 760     $ 43,674  

Allowance for loan commitments

     151       17       188       9       162       44       —         571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total beginning allowance for credit losses

     4,499       18,645       8,600       4,115       3,584       4,042       760       44,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses:

                

Provision for loan losses

     1,039       558       1,552       39       466       970       444       5,068  

Provision for loan commitments

     14       1       (9     1       17       2       —         26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for credit losses

     1,053       559       1,543       40       483       972       444       5,094  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —         (1,574     (1,205     (592     (293     (1,965     (611     (6,240

Recoveries

     70       376       475       164       151       990       181       2,407  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     70       (1,198     (730     (428     (142     (975     (430     (3,833
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017:

                

Allowance for loan losses

     5,457       17,988       9,234       3,717       3,746       3,993       774       44,909  

Allowance for loan commitments

     165       18       179       10       179       46       —         597  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance for credit losses

   $ 5,622     $ 18,006     $ 9,413     $ 3,727     $ 3,925     $ 4,039     $ 774     $ 45,506  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following tables present the allowance for credit losses and recorded investments in loans by category:

 

    Allowance for Credit Losses and Recorded Investment in Loans  
    Commercial     Commercial                                      
    Real Estate-     Real Estate-     Commercial     Residential                 Deposit        
    Land and     Improved     and     Real     Home           Over-        

(unaudited, in thousands)

  Construction     Property     Industrial     Estate     Equity     Consumer     draft     Total  

June 30, 2018

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —    

Allowance for loans collectively evaluated for impairment

    4,710       19,476       11,534       3,893       4,158       2,951       916       47,638  

Allowance for loan commitments

    163       18       175       9       205       37       —         607  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 4,873     $ 19,494     $ 11,709     $ 3,902     $ 4,363     $ 2,988     $ 916     $ 48,245  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 1,730     $ —       $ —       $ —       $ —       $ —       $ 1,730  

Collectively evaluated for impairment

    479,526       2,699,410       1,293,708       1,449,729       535,629       322,594       —         6,780,596  

Acquired with deteriorated credit quality

    2,164       6,505       780       1,100       24       —         —         10,573  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 481,690     $ 2,707,645     $ 1,294,488     $ 1,450,829     $ 535,653     $ 322,594     $ —       $ 6,792,899  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2017

               

Allowance for credit losses:

               

Allowance for loans individually evaluated for impairment

  $ —       $ 388     $ —       $ —       $ —       $ —       $ —       $ 388  

Allowance for loans collectively evaluated for impairment

    3,117       20,778       9,414       3,206       4,497       3,063       821       44,896  

Allowance for loan commitments

    119       26       173       7       212       37       —         574  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

  $ 3,236     $ 21,192     $ 9,587     $ 3,213     $ 4,709     $ 3,100     $ 821     $ 45,858  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Portfolio loans:

               

Individually evaluated for impairment (1)

  $ —       $ 3,344     $ —       $ —       $ —       $ —       $ —       $ 3,344  

Collectively evaluated for impairment

    391,140       2,593,393       1,124,544       1,352,587       529,196       339,163       —         6,330,023  

Acquired with deteriorated credit quality

    1,457       5,114       783       714       —         6       —         8,074  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total portfolio loans

  $ 392,597     $ 2,601,851     $ 1,125,327     $ 1,353,301     $ 529,196     $ 339,169     $ —       $ 6,341,441  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Commercial loans greater than $1 million that are reported as non-accrual or as a TDR are individually evaluated for impairment.

WesBanco maintains an internal loan grading system to reflect the credit quality of commercial loans. Commercial loan risk grades are determined based on an evaluation of the relevant characteristics of each loan, assigned at the inception of each loan and adjusted thereafter at any time to reflect changes in the risk profile throughout the life of each loan. The primary factors used to determine the risk grade are the reliability and sustainability of the primary source of repayment and overall financial strength of the borrower. This includes an analysis of cash flow available to repay debt, profitability, liquidity, leverage, and overall financial trends. Other factors include management, industry or property type risks, an assessment of secondary sources of repayment such as collateral or guarantees, other terms and conditions of the loan that may increase or reduce its risk, and economic conditions and other external factors that may influence repayment capacity and financial condition.

Commercial real estate – land and construction consists of loans to finance investments in vacant land, land development, construction of residential housing, and construction of commercial buildings. Commercial real estate – improved property consists of loans for the purchase or refinance of all types of improved owner-occupied and investment properties. Factors that are considered in assigning the risk grade vary depending on the type of property financed. The risk grade assigned to construction and development loans is based on the overall viability of the project, the experience and financial capacity of the developer or builder to successfully complete the project, project specific and market absorption rates and comparable property values, and the amount of pre-sales for residential housing construction or pre-leases for commercial investment property. The risk grade assigned to commercial investment property loans is based primarily on the adequacy of net rental income generated by the property to service the debt, the type, quality, industry and mix of tenants, and the terms of leases, but also considers the overall financial capacity of the investors and their experience in owning and managing investment property. The risk grade assigned to owner-occupied commercial real estate and commercial and industrial loans is based primarily on historical and projected earnings, the adequacy of operating cash flow to service all of the business’ debt, and the capital resources, liquidity and leverage of the business, but also considers the industry in which the business operates, the business’ specific competitive advantages or disadvantages, the quality and experience of management, and external influences on the business such as economic conditions.

Commercial and industrial loans consist of revolving lines of credit to finance accounts receivable, inventory and other general business purposes; term loans to finance fixed assets other than real estate, and letters of credit to support trade, insurance or governmental requirements for a variety of businesses. Most C&I borrowers are privately-held companies with annual sales up to $100 million. Factors that are considered for commercial and industrial loans include the type, quality and marketability of non-real estate collateral and whether the structure of the loan increases or reduces its risk. The type, age, condition, location and any environmental risks associated with a property are also considered for all types of commercial real estate. The overall financial condition and repayment capacity of any guarantors is also evaluated to determine the extent to which they mitigate other risks of the loan. The following paragraphs provide descriptions of risk grades that are applicable to commercial real estate and commercial and industrial loans.

Pass loans are those that exhibit a history of positive financial results that are at least comparable to the average for their industry or type of real estate. The primary source of repayment is acceptable and these loans are expected to perform satisfactorily during most economic cycles. Pass loans typically have no significant external factors that are expected to adversely affect these borrowers more than others in the same industry or property type. Any minor unfavorable characteristics of these loans are outweighed or mitigated by other positive factors including but not limited to adequate secondary or tertiary sources of repayment.

 

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Table of Contents

Criticized or compromised loans are currently protected but have weaknesses, which, if not corrected, may be inadequately protected at some future date. These loans represent an unwarranted credit risk and would generally not be extended in the normal course of lending. Specific issues which may warrant this grade include declining financial results, increased reliance on secondary sources of repayment or guarantor support and adverse external influences that may negatively impact the business or property.

Substandard and doubtful loans are equivalent to the classifications used by banking regulators. Substandard loans are inadequately protected by the current repayment capacity and equity of the borrower or collateral pledged, if any. Substandard loans have one or more well-defined weaknesses that jeopardize their repayment or collection in full. These loans may or may not be reported as non-accrual. Doubtful loans have all the weaknesses inherent to a substandard loan with the added characteristic that full repayment is highly questionable or improbable on the basis of currently existing facts, conditions and collateral values. However, recognition of loss may be deferred if there are reasonably specific pending factors that will reduce the risk if they occur.

The following tables summarize commercial loans by their assigned risk grade:

 

     Commerical Loans by Internally Assigned Risk Grade  

(unaudited, in thousands)

   Commercial
Real Estate-
Land and
Construction
     Commercial
Real Estate-
Improved
Property
     Commercial
& Industrial
     Total
Commercial
Loans
 

As of June 30, 2018

           

Pass

   $ 476,242      $ 2,656,226      $ 1,278,328      $ 4,410,796  

Criticized - compromised

     2,728        27,809        3,508        34,045  

Classified - substandard

     2,720        23,610        12,652        38,982  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 481,690      $ 2,707,645      $ 1,294,488      $ 4,483,823  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2017

           

Pass

   $ 386,753      $ 2,548,805      $ 1,110,267      $ 4,045,825  

Criticized - compromised

     2,984        25,673        7,435        36,092  

Classified - substandard

     2,860        27,373        7,625        37,858  

Classified - doubtful

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 392,597      $ 2,601,851      $ 1,125,327      $ 4,119,775  
  

 

 

    

 

 

    

 

 

    

 

 

 

Residential real estate, home equity and consumer loans are not assigned internal risk grades other than as required by regulatory guidelines that are based primarily on the age of past due loans. WesBanco primarily evaluates the credit quality of residential real estate, home equity and consumer loans based on repayment performance and historical loss rates. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard in accordance with regulatory guidelines was $20.3 million at June 30, 2018 and $22.8 million at December 31, 2017, of which $1.3 and $2.5 million were accruing, for each period, respectively. The aggregate amount of residential real estate, home equity and consumer loans classified as substandard are not included in the tables above.

Acquired FTSB Loans — In conjunction with the FTSB acquisition, WesBanco acquired loans with a book value of $465.9 million as of April 5, 2018. These loans were recorded at the preliminary fair value of $448.3 million, with $432.3 million categorized as ASC 310-20 loans. The fair market value adjustment on these loans of $10.3 million at acquisition date is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Loans acquired with deteriorated credit quality with a book value of $5.5 million were recorded at the preliminary fair value of $3.1 million, of which $0.7 million were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and categorized as non-accrual.

The carrying amount of loans acquired with deteriorated credit quality at June 30, 2018 was $3.0 million, while the outstanding customer balance was $5.4 million. At June 30, 2018 no allowance for loan losses has been recognized related to the acquired impaired loans.

Certain acquired underperforming loans with a book value of $17.7 million were sold prior to June 30, 2018 for $12.9 million. The acquisition date fair value of the acquired loans was adjusted to the sale price resulting in no gain or loss.

Other Acquired Loans — The carrying amount of other loans acquired with deteriorated credit quality at June 30, 2018 and December 31, 2017 was $7.6 million and $8.0 million, respectively, of which $4.1 million and $4.3 million, respectively, were accounted for under the cost recovery method in accordance with ASC 310-30 as cash flows cannot be reasonably estimated, and therefore were categorized as non-accrual. At June 30, 2018, the accretable yield was $7.1 million. At June 30, 2018 and December 31, 2017 an allowance for loan losses of $2.2 million and $2.0 million, respectively, has been recognized related to other acquired impaired loans, as the estimates for future cash flows on these loans have been negatively impacted.

The following table provides changes in accretable yield for loans acquired with deteriorated credit quality:

 

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Table of Contents
     For the Six Months Ended  

(unaudited, in thousands)

   June 30,
2018
     June 30,
2017
 

Balance at beginning of period

   $ 1,724      $ 1,717  

Acquisitions

     —          —    

Reduction due to change in projected cash flows

     (86      —    

Reclass from non-accretable difference

     5,877        738  

Transfers out

     —          (216

Accretion

     (440      (279
  

 

 

    

 

 

 

Balance at end of period

   $ 7,075      $ 1,960  
  

 

 

    

 

 

 

The following tables summarize the age analysis of all categories of loans:

 

     Age Analysis of Loans  

(unaudited, in thousands)

   Current      30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More
Past Due
     Total
Past Due
     Total
Loans
     90 Days
or More
Past Due and
Accruing (1)
 

As of June 30, 2018

                    

Commercial real estate:

                    

Land and construction

   $ 481,156      $ 287      $ 75      $ 172      $ 534      $ 481,690      $ 172  

Improved property

     2,697,718        1,408        165        8,354        9,927        2,707,645        250  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     3,178,874        1,695        240        8,526        10,461        3,189,335        422  

Commercial and industrial

     1,290,411        744        435        2,898        4,077        1,294,488        219  

Residential real estate

     1,435,731        5,469        2,798        6,831        15,098        1,450,829        255  

Home equity

     529,625        1,593        1,232        3,203        6,028        535,653        477  

Consumer

     319,157        2,025        569        843        3,437        322,594        508  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,753,798        11,526        5,274        22,301        39,101        6,792,899        1,881  

Loans held for sale

     12,053        —          —          —          —          12,053        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,765,851      $ 11,526      $ 5,274      $ 22,301      $ 39,101      $ 6,804,952      $ 1,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

   $ 8,525      $ 1,316      $ 1,734      $ 20,406      $ 23,456      $ 31,981     

TDRs accruing interest (1)

     6,053        139        254        14        407        6,460     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 14,578      $ 1,455      $ 1,988      $ 20,420      $ 23,863      $ 38,441     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

As of December 31, 2017

                    

Commercial real estate:

                    

Land and construction

   $ 392,189      $ —        $ 172      $ 236      $ 408      $ 392,597      $ —    

Improved property

     2,589,704        374        1,200        10,573        12,147        2,601,851        243  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     2,981,893        374        1,372        10,809        12,555        2,994,448        243  

Commercial and industrial

     1,121,957        572        196        2,602        3,370        1,125,327        20  

Residential real estate

     1,338,240        4,487        2,376        8,198        15,061        1,353,301        1,113  

Home equity

     522,584        2,135        683        3,794        6,612        529,196        742  

Consumer

     334,723        2,466        842        1,138        4,446        339,169        608  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total portfolio loans

     6,299,397        10,034        5,469        26,541        42,044        6,341,441        2,726  

Loans held for sale

     20,320        —          —          —          —          20,320        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,319,717      $ 10,034      $ 5,469      $ 26,541      $ 42,044      $ 6,361,761      $ 2,726  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans included above are as follows:

 

              

Non-accrual loans

   $ 9,195      $ 1,782      $ 2,033      $ 23,815      $ 27,630      $ 36,825     

TDRs accruing interest (1)

     6,055        348        168        —          516        6,571     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total impaired

   $ 15,250      $ 2,130      $ 2,201      $ 23,815      $ 28,146      $ 43,396     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1) Loans 90 days or more past due and accruing interest exclude TDRs 90 days or more past due and accruing interest.

 

17


Table of Contents

The following tables summarize impaired loans:

 

     Impaired Loans  
     June 30, 2018      December 31, 2017  
    

Unpaid

Principal

Balance(1)

    

Recorded

Investment

    

Related

Allowance

    

Unpaid

Principal

Balance(1)

    

Recorded

Investment

    

Related

Allowance

 
                   

(unaudited, in thousands)

                 

With no related specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

   $ —        $ —        $ —        $ 412      $ 239      $ —    

Improved property

     15,521        10,889        —          18,229        12,863        —    

Commercial and industrial

     5,666        3,317        —          3,745        3,086        —    

Residential real estate

     20,312        18,379        —          20,821        18,982        —    

Home equity

     5,978        5,143        —          5,833        5,169        —    

Consumer

     875        713        —          1,084        952        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     48,352        38,441        —          50,124        41,291        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                 

Commercial real estate:

                 

Land and construction

     —          —          —          —          —          —    

Improved property

     —          —          —          2,105        2,105        388  

Commercial and industrial

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     —          —          —          2,105        2,105        388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 48,352      $ 38,441      $ —        $ 52,229      $ 43,396      $ 388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off and fair market value adjustments on acquired impaired loans.

 

     Impaired Loans  
     For the Three Months Ended      For the Six Months Ended  
     June 30, 2018      June 30, 2017      June 30, 2018      June 30, 2017  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 
                         

(unaudited, in thousands)

                       

With no related specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

   $ 400      $ —        $ 411      $ —        $ 346      $ —        $ 529      $ —    

Improved Property

     10,604        23        11,118        23        11,357        368        10,125        369  

Commercial and industrial

     3,036        2        4,268        2        3,008        4        3,905        4  

Residential real estate

     18,264        61        17,787        66        18,434        127        17,959        135  

Home equity

     5,068        6        4,485        5        5,098        11        4,327        10  

Consumer

     758        2        733        1        823        5        737        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

     38,130        94        38,802        97        39,066        515        37,582        521  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With a specific allowance recorded:

                       

Commercial real estate:

                       

Land and construction

     —          —          —          —          —          —          —          —    

Improved Property

     1,052        —          5,999        —          1,403        —          5,003        —    

Commercial and industrial

     —          —          —          —          —          —          423        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

     1,052        —          5,999        —          1,403        —          5,426        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 39,182      $ 94      $ 44,801      $ 97      $ 40,469      $ 515      $ 43,008      $ 521  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

The following tables present the recorded investment in non-accrual loans and TDRs:

 

     Non-accrual Loans (1)  

(unaudited, in thousands)

   June 30,
2018
     December 31,
2017
 

Commercial real estate:

     

Land and construction

   $ —        $ 239  

Improved property

     9,479        13,318  
  

 

 

    

 

 

 

Total commercial real estate

     9,479        13,557  
  

 

 

    

 

 

 

Commercial and industrial

     3,191        2,958  

Residential real estate

     13,951        14,661  

Home equity

     4,726        4,762  

Consumer

     634        887  
  

 

 

    

 

 

 

Total

   $ 31,981      $ 36,825  
  

 

 

    

 

 

 

 

(1) 

At June 30, 2018, there were two borrowers with loans greater than $1.0 million totaling $5.2 million, as compared to three borrowers with loans greater than $1.0 million totaling $6.8 million at December 31, 2017. Total non-accrual loans include loans that are also restructured. Such loans are also set forth in the following table as non-accrual TDRs.

 

     TDRs  
     June 30, 2018      December 31, 2017  

(unaudited, in thousands)

   Accruing      Non-Accrual      Total      Accruing      Non-Accrual      Total  

Commercial real estate:

                 

Land and construction

   $ —        $ —        $ —        $ —        $ 3      $ 3  

Improved property

     1,410        617        2,027        1,650        428        2,078  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1,410        617        2,027        1,650        431        2,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     126        91        217        128        97        225  

Residential real estate

     4,428        1,516        5,944        4,321        1,880        6,201  

Home equity

     417        224        641        407        337        744  

Consumer

     79        66        145        65        120        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,460      $ 2,514      $ 8,974      $ 6,571      $ 2,865      $ 9,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2018 and December 31, 2017, there were no TDRs greater than $1.0 million. The concessions granted in the majority of loans reported as accruing and non-accrual TDRs are extensions of the maturity date or the amortization period, reductions in the interest rate below the prevailing market rate for loans with comparable characteristics, and/or permitting interest-only payments for longer than three months. WesBanco had unfunded commitments to debtors whose loans were classified as impaired of $0.3 million and $0.1 million as of June 30, 2018 and December 31, 2017, respectively.

The following tables present details related to loans identified as TDRs during the three and six months ended June 30, 2018 and 2017, respectively:

 

     New TDRs (1)
For the Three Months Ended
 
     June 30, 2018      June 30, 2017  
            Pre-      Post-             Pre-      Post-  
            Modification      Modification             Modification      Modification  
            Outstanding      Outstanding             Outstanding      Outstanding  
     Number of      Recorded      Recorded      Number of      Recorded      Recorded  

(unaudited, dollars in thousands)

   Modification      Investment      Investment      Modifications      Investment      Investment  

Commercial real estate:

                 

Land and construction

     —        $ —        $ —          —        $ —        $ —    

Improved Property

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     1        9        9        —          —          —    

Residential real estate

     —          —          —          1        11        10  

Home equity

     1        20        20        1        44        44  

Consumer

     2        39        36        2        22        20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4      $ 68      $ 65        4      $ 77      $ 74  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

 

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Table of Contents
     New TDRs (1)  
     For the Six Months Ended  
     June 30, 2018      June 30, 2017  
            Pre-      Post-             Pre-      Post-  
            Modification      Modification             Modification      Modification  
            Outstanding      Outstanding             Outstanding      Outstanding  
     Number of      Recorded      Recorded      Number of      Recorded      Recorded  

(unaudited, dollars in thousands)

   Modifications      Investment      Investment      Modifications      Investment      Investment  

Commercial real estate:

 

           

Land and construction

     —        $ —        $ —          —        $ —        $ —    

Improved Property

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     1        10        9        2        125        120  

Residential real estate

     5        203        185        2        22        18  

Home equity

     1        20        20        1        45        44  

Consumer

     4        45        38        3        34        29  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11      $ 278      $ 252        8      $ 226      $ 211  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

The following table summarizes TDRs which defaulted (defined as past due 90 days) during the six months ended June 30, 2018 and 2017, respectively, that were restructured within the last twelve months prior to June, 2018 and 2017, respectively:

 

     Defaulted TDRs (1)  
     For the Six Months Ended  
     June 30, 2018      June 30, 2017  

(unaudited, dollars in thousands)

   Number of
Defaults
     Recorded
Investment
     Number of
Defaults
     Recorded
Investment
 

Commercial real estate:

           

Land and construction

     —        $ —          —        $ —    

Improved property

     1        145        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1        145        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

     —          —          —          —    

Residential real estate

     1        121        —          —    

Home equity

     1        7        —          —    

Consumer

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3      $ 273        —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes loans that were either charged-off or cured by period end. The recorded investment is as of June 30, 2018 and 2017, respectively.

TDRs that default are placed on non-accrual status unless they are both well-secured and in the process of collection. The loans in the table above were not accruing interest.

The following table summarizes other real estate owned and repossessed assets included in other assets:

 

(unaudited, in thousands)

   June 30,
2018
     December 31,
2017
 

Other real estate owned

   $ 4,334      $ 5,195  

Repossessed assets

     50        102  
  

 

 

    

 

 

 

Total other real estate owned and repossessed assets

   $ 4,384      $ 5,297  
  

 

 

    

 

 

 

Residential real estate included in other real estate owned at June 30, 2018 and December 31, 2017 was $0.8 million and $1.5 million, respectively. At June 30, 2018 and December 31, 2017, formal foreclosure proceedings were in process on residential real estate loans totaling $5.7 million and $3.5 million, respectively.

 

20


Table of Contents

NOTE 6. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

WesBanco is exposed to certain risks arising from both its business operations and economic conditions. WesBanco principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. WesBanco manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. WesBanco’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in WesBanco’s assets or liabilities. WesBanco manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. A matched book is when the Bank’s assets and liabilities are equally distributed but also have similar maturities.

Loan Swaps

WesBanco executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that WesBanco executes with a third party, such that WesBanco minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of ASC 815, changes in the fair value of both the customer swaps and the offsetting third-party swaps are recognized directly in earnings. As of June 30, 2018 and December 31, 2017, WesBanco had 42 and 39, respectively, interest rate swaps with an aggregate notional amount of $305.6 million and $298.2 million, respectively, related to this program. During the six months ended June 30, 2018 and 2017, WesBanco recognized net gains (net losses) of $0.2 million and $(0.3) million, respectively, related to the changes in fair value of these swaps. Additionally, WesBanco recognized $0.5 million and $1.1 million of income for the related swap fees for the six months ended June 30, 2018 and 2017, respectively.

Mortgage Loans Held for Sale and Loan Commitments

Certain residential mortgage loans are originated for sale in the secondary mortgage loan market. These loans are classified as held for sale and carried at fair value as WesBanco has elected the fair value option. Fair value is determined based on rates obtained from the secondary market for loans with similar characteristics. WesBanco sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis are not committed to an investor until the loan is closed with the borrower. WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitment and the closing of the loan. The loans sold on a best efforts basis are committed to an investor simultaneous to the interest rate commitment with the borrower.

Fair Values of Derivative Instruments on the Balance Sheet

All derivatives are carried on the consolidated balance sheet at fair value. Derivative assets are classified in the consolidated balance sheet under other assets, and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings. None of WesBanco’s derivatives are designated in qualifying hedging relationships under ASC 815.

The table below presents the fair value of WesBanco’s derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2018 and December 31, 2017:

 

     June 30, 2018      December 31, 2017  

(unaudited, in thousands)

   Notional or
Contractual
Amount
     Asset
Derivatives
     Liability
Derivatives
     Notional or
Contractual
Amount
     Asset
Derivatives
     Liability
Derivatives
 

Derivatives

                 

Loan Swaps:

                 

Interest rate swaps

   $ 305,642      $ 11,048      $ 10,832      $ 298,223      $ 7,351      $ 7,345  

Other contracts:

                 

Interest rate loan commitments

     29,505        143        —          20,319        49        —    

Forward TBA contracts

     31,000        —          102        31,750        —          23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

      $ 11,191      $ 10,934         $ 7,400      $ 7,368  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effect of Derivative Instruments on the Income Statement

The table below presents the change in the fair value of the Company’s derivative financial instruments reflected within the other non-interest income line item of the consolidated income statement for the three and six months ended June 30, 2018 and 2017, respectively.

 

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          For the Three Months Ended      For the Six Months Ended  
    

Location of Gain/(Loss)

   June 30,      June 30,  

(unaudited, in thousands)

      2018      2017      2018      2017  

Interest rate swaps

  

Other income

   $ 44      $ (108    $ 211      $ (303

Interest rate loan commitments

  

Mortgage banking income

     7        —          143        123  

Forward TBA contracts

  

Mortgage banking income

     (11      —          399        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 40      $ (108    $ 753      $ (180
     

 

 

    

 

 

    

 

 

    

 

 

 

Credit-risk-related Contingent Features

WesBanco has agreements with its derivative counterparties that contain a provision where if WesBanco defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then WesBanco could also be declared in default on its derivative obligations.

WesBanco also has agreements with certain of its derivative counterparties that contain a provision where if WesBanco fails to maintain its status as either a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and WesBanco would be required to settle its obligations under the agreements.

WesBanco has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral with a market value of $2.3 million as of June 30, 2018. If WesBanco had breached any of these provisions at June 30, 2018, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.

NOTE 7. PENSION PLAN

The following table presents the net periodic pension cost for WesBanco’s Defined Benefit Pension Plan (the “Plan”) and the related components:

 

     For the Three Months Ended      For the Six Months Ended  
     June 30,      June 30,  

(unaudited, in thousands)

   2018      2017      2018      2017  

Service cost – benefits earned during year

   $ 707      $ 643      $ 1,406      $ 1,279  

Interest cost on projected benefit obligation

     1,228        1,096        2,442        2,180  

Expected return on plan assets

     (2,390      (1,907      (4,753      (3,793

Amortization of prior service cost

     7        6        13        12  

Amortization of net loss

     758        803        1,508        1,597  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 310      $ 641      $ 616      $ 1,275  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Plan covers all employees of WesBanco and its subsidiaries who were hired on or before August 1, 2007 who satisfy minimum age and length of service requirements, and is not available to employees hired after such date.

A minimum required contribution of $5.1 million is due for 2018, which could be all or partially offset by the Plan’s $56.9 million available credit balance. WesBanco made a voluntary contribution of $2.5 million to the Plan in June 2018.

WesBanco assumed YCB’s obligation for a predecessor bank’s participation in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra Plan”). The participating employer plan has been frozen to new participants since 2002. WesBanco spun off the assets from the Pentegra Plan, contributing approximately $2.8 million to satisfy the estimated final costs to do so. This spin off had no impact on earnings as the liability was included in YCB’s balance sheet as of the acquisition date. The distributed assets from the Pentegra Plan were transferred to a plan providing substantially the same benefits to the participants. The net periodic pension income for this plan for the three and six months ended June 30, 2018 was $62 thousand and $0.1 million, respectively, which was comprised of a $0.2 million and a $0.3 million expected return on plan assets and a $3 thousand and a $6 thousand recognized net actuarial gain partially offset by a $0.1 million and a $0.2 million interest cost on projected benefit obligation for the three and six months ended June 30, 2018, respectively.

No minimum contribution is due for this plan for fiscal year 2018; however, WesBanco made a voluntary contribution of $0.2 million to this plan in June 2018.

 

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NOTE 8. FAIR VALUE MEASUREMENT

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities, and therefore the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Investment securities: The fair value of investment securities which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other similar securities. These securities are classified within level 1 or 2 in the fair value hierarchy. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management’s best estimate are classified within level 3 of the fair value hierarchy. This includes certain specific municipal debt issues for which the credit quality and discount rate must be estimated.

Derivatives: WesBanco enters into interest rate swap agreements with qualifying commercial customers to meet their financing, interest rate and other risk management needs. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Those interest rate swaps are economically hedged by offsetting interest rate swaps that WesBanco executes with derivative counterparties in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income and other expense.

WesBanco enters into forward TBA contracts to manage the interest rate risk between the loan commitments to the customer and the closing of the loan for loans that will be sold on a mandatory basis to secondary market investors. The forward TBA contract is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period’s earnings as mortgage banking income.

WesBanco determines the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. WesBanco incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

We may be required from time to time to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or write-downs of individual assets and liabilities.

Impaired loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

Other real estate owned and repossessed assets: Other real estate owned and repossessed assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. The use of independent appraisals and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral, and therefore other real estate owned and repossessed assets are classified within level 3 of the fair value hierarchy.

Loans held for sale: Loans held for sale are carried, in aggregate, at fair value as WesBanco has elected the fair value option as of October 1, 2017. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within level 2 of the fair value hierarchy.

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The following tables set forth WesBanco’s financial assets and liabilities that were accounted for at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as of June 30, 2018 and December 31, 2017:

 

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Table of Contents
            June 30, 2018  
            Fair Value Measurements Using:  
     June 30,
2018
    

Quoted Prices in
Active Markets
for Identical
Assets

    

Significant
Other
Observable
Inputs

    

Significant
Unobservable
Inputs

     Investments
Measured at
Net Asset
 

(unaudited, in thousands)

      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Equity securities

   $ 13,494      $ 13,494      $ —        $ —        $ —    

Debt securities - available-for-sale

 

           

U.S. Treasury

     9,913        —          9,913        —          —    

U.S. Government sponsored entities and agencies

     100,682        —          100,682        —          —    

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

     1,373,417        —          1,373,417        —          —    

Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

     140,647        —          140,647        —          —    

Obligations of state and political subdivisions

     126,799        —          126,799        —          —    

Corporate debt securities

     45,113        —          45,113        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities - available-for-sale

   $ 1,796,571      $ —        $ 1,796,571      $ —        $ —    

Loans held for sale

     12,053        —          12,053        —          —    

Other assets - interest rate derivatives agreements

     11,048        —          11,048        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,833,166      $ 13,494      $ 1,819,672      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 10,832      $ —        $ 10,832      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 10,832      $ —        $ 10,832      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

 

        

Impaired loans

   $ —        $ —        $ —        $ —        $ —    

Other real estate owned and repossessed assets

     4,384        —          —          4,384        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 4,384      $ —        $ —        $ 4,384      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            December 31, 2017  
            Fair Value Measurements Using:  
    

December 31,

     Quoted Prices in
Active Markets
for Identical
Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
     Investments
Measured
at Net Asset
 

(unaudited, in thousands)

   2017      (level 1)      (level 2)      (level 3)      Value  

Recurring fair value measurements

              

Equity securities

   $ 13,457      $ 11,391      $ —        $ —        $ 2,066  

Debt securities - available-for-sale

              

U.S. Government sponsored entities and agencies

     71,843        —          71,843        —          —    

Residential mortgage-backed securities and collateralized mortgage obligations of government agencies

     934,922        —          934,922        —          —    

Commercial mortgage-backed securities and collateralized mortgage obligations of government sponsored entities and agencies

     114,867        —          114,867        —          —    

Obligations of state and political subdivisions

     104,830        —          104,830        —          —    

Corporate debt securities

     35,403        —          35,403        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities - available-for-sale

   $ 1,261,865      $ —        $ 1,261,865      $ —        $ —    

Loans held for sale

     20,320        —          20,320        —          —    

Other assets - interest rate derivatives agreements

     7,351        —          7,351        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets recurring fair value measurements

   $ 1,302,993      $ 11,391      $ 1,289,536      $ —        $ 2,066  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities - interest rate derivatives agreements

   $ 7,345      $ —        $ 7,345      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities recurring fair value measurements

   $ 7,345      $ —        $ 7,345      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring fair value measurements

 

           

Impaired loans

   $ 1,717      $ —        $ —        $ 1,717      $ —    

Other real estate owned and repossessed assets

     5,297        —          —          5,297        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ 7,014      $ —        $ —        $ 7,014      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

WesBanco’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no significant transfers between level 1, 2 or 3 for the three and six months ended June 30, 2018 or for the year ended December 31, 2017.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which WesBanco has utilized level 3 inputs to determine fair value:

 

     Quantitative Information about Level 3 Fair Value Measurements
     Fair Value      Valuation   Unobservable   Range (Weighted

(unaudited, in thousands)

   Estimate      Techniques   Input  

Average)

June 30, 2018

         

Impaired loans

   $ —        Appraisal of collateral (1)   Appraisal adjustments (2)   —  
        Liquidation expenses (2)   —  

Other real estate owned and repossessed assets

     4,384      Appraisal of collateral (1), (3)    

December 31, 2017:

         

Impaired loans

   $ 1,717      Appraisal of collateral (1)   Appraisal adjustmen